Bitcoin and ether shouldn’t be regulated like stocks and bonds, a top SEC official says

Discussion in 'Cryptocurrencies' started by johnarb, Jun 14, 2018.

  1. johnarb

    johnarb

    Washington Post Source

    Two of the world's biggest virtual currencies need not be regulated like stocks and bonds, a top official at the Securities and Exchange Commission said Thursday, putting to rest months of uncertainty about how the financial regulator views bitcoin and ether, the cryptocurrency behind Ethereum.

    Speaking at an industry conference in San Francisco, William Hinman, the SEC's director of corporate finance, said the two top cryptocurrencies don't meet the criteria for regulation that the agency typically applies to traditional securities.

    “Based on my understanding of the present state of ether, the Ethereum network and its decentralized structure, current offers and sales of ether are not securities transactions,” Hinman said.

    Hinman's remarks suggest that, unlike companies, which are required to educate stock investors about the health of their businesses, the developers behind bitcoin and ether face no such obligations. The basis for this conclusion, Hinman said, lies in the fact that bitcoin and ether are developed diffusely, by many unaffiliated people, rather than by a single, centralized entity such as a corporation.

    “As a network becomes truly decentralized, the ability to identify an issuer or promoter to make the requisite disclosures becomes difficult and less meaningful,” Hinman said. “As with bitcoin, applying the disclosure regime of the federal securities laws to current transactions in ether would seem to add little value.”

    The speech was seen as a victory by cryptocurrency advocates who have argued that applying securities regulation to a novel technology could inhibit its growth. Minutes after Hinman began speaking, the price of bitcoin spiked by nearly 3 percent, according to Coinmarketcap.com. The price of ether surged more than 9 percent.

    “We are thrilled to see [the SEC] take a strong pro-innovation approach to this nascent technology,” said Jerry Brito, executive director of the Coin Center, a Washington think tank and lobbying organization dedicated to cryptocurrencies.

    The regulatory status of cryptocurrencies has come into question as numerous cryptocurrency projects have sought funding with so-called initial coin offerings, an approach some have compared to initial public offerings of corporate stock. Whether investors were receiving adequate disclosures — or perhaps being lured into scams — became a major focus of regulators such as the SEC in recent months.

    In May, state securities regulators announced a nationwide crackdown on investment schemes accused of misleading or defrauding consumers. Dozens of probes into initial coin offerings (ICOs) and other get-rich-quick promises led to cease-and-desist letters from the state regulators. Meanwhile, warnings from top SEC officials of the potential hazards of ICOs prompted analysts to wonder whether a wider reckoning for cryptocurrency was coming.

    On Thursday, Reuters reported, the U.S. Commodity Futures Trading Commission asked a federal judge to rule that the virtual currency My Big Coin is a commodity subject to the regulator's oversight. Reuters said that the lawsuit filed against technology entrepreneur Randall Crater and My Big Coin Pay could determine to what extent the CFTC can regulate cryptocurrency frauds.

    For the SEC not to regulate bitcoin and ether could create some risks for investors, said David Sirignano, a partner at the law firm Morgan Lewis.

    “Buying into a platform that does not provide [securities] disclosures and is not being treated as a security,” he said, “they not only don’t get the benefit of those disclosures, but they also do not get the benefit of some of the rights that securities laws afford investors, including the right to rescind their purchase if they were misled or if it was improperly issued.”

    The SEC’s announcement Thursday is likely to open up new questions for cryptocurrency entrepreneurs, said Gary Gensler, the former chairman of the Commodities Futures Trading Commission. “When is something that waddles like a duck and quacks like a duck and thus regulated like a duck no longer waddle and quack sufficiently that it doesn’t need to be regulated like a duck any longer?” he said.

    In many cases, but not all, companies that handle cryptocurrencies comply with tax, banking and other regulations that aim to protect consumers. Securities laws aim to add an additional layer of safety beyond ordinary consumer protection law, analysts say.

    Although bitcoin and ether do not appear to warrant securities regulation today, Hinman said, that could change in the future. And the SEC's analysis on Thursday did not address other cryptocurrencies that the agency may decide ought to be regulated as securities.
     
    zdreg and vanzandt like this.
  2. Pekelo

    Pekelo

    I agree with him. Let's say I trade baseball cards. Then some fuckass exchange decides to introduce futures on the cards. Now suddenly my baseball trading belongs under SEC supervision???
     
  3. bone

    bone ET Sponsor

    The SEC doesn’t make law, though.
     
  4. Pekelo

    Pekelo

    It doesn't matter if it starts to regulate my baseball card business, although before the futures's existence they didn't care.
     
  5. Pekelo

    Pekelo

    To argue with myself, when a crypto behaves like a security, it does belong under SEC supervision, but not because futures on it exists. Here is an interesting excange on the matter from Reddit:




    SolidFaiz[S] 34 points 5 hours ago

    They said they wouldn’t treat bitcoin and ether as securities. But the ether community was more concerned, because vitalik (correct me if I’m wrong) was the first to do a ICO, which had similarities to a security offering

    • CryptoOnly
      Not the first to do an ICO but the only one that stood the test of time and was still around to face the music if the ruling went the other direction, although it was never incorporated in the US anyway so it would have been an uphill battle for them to pursue it.
      Good news for the crypto space regardless, shows that the SEC is taking a very hands off approach.
      • SolidFaiz[S] 5 points 4 hours ago

        Indeed, taking away uncertainty helps a lot. Do you happen to know who did the first ICO?
        • crypto_kang [score hidden] 3 hours ago

          Mastercoin in 2013 raised $500,000
     
  6. gkishot

    gkishot

    That's right. Your business is on the open market now.
     
  7. Bitcoin is a magnet for every scammer out there. It seems to be used often. To legitimize bitcoin it would have to be a traceable financial transaction.

    ES
     
  8. Turveyd

    Turveyd

    Bitcoin is dead, move on!!!
     
  9. Replies to johnarb’s and Pekelo’s posts below:

    "johnarb, post: 4673053, member: 498490"]Washington Post Source

    Two of the world's biggest virtual currencies need not be regulated like stocks and bonds, a top official at the Securities and Exchange Commission said Thursday, putting to rest months of uncertainty about how the financial regulator views bitcoin and ether, the cryptocurrency behind Ethereum.
    Nice phraseology here: “Top official” and “Putting to rest months of uncertaintly about how the financial regulator views Bitcoin and Ether...”

    This “Top official” does not make policy. “Putting to test...” for who? As more and more people get burned in many ways as previously dicussed in other threads, the regulators will inevitably become involved.


    Speaking at an industry conference in San Francisco, William Hinman, the SEC's director of corporate finance, said the two top cryptocurrencies don't meet the criteria for regulation that the agency typically applies to traditional securities.
    Whether the SEC become involved or another cryptocurrency regulatory authority is created, cryptocurrencies will be regulated ans tax laws will be increasingly enforced.

    “Based on my understanding of the present state of ether, the Ethereum network and its decentralized structure, current offers and sales of ether are not securities transactions,” Hinman said.
    These transactions can include public money going through an intermediary exchange and potentially using a software or firmware wallet. The storage of the cryptocurrency can involve a third party in many cases to cut down on data storage requirements.

    In addition, we see near continual promotion on social media of cryptocurrencies in ways remeniscent of penny stock fraud. These promotional efforts sell lifestyle changes, don’t consider suitibility of investment, makes outrangeous claims of potential performance, and don’t disclose risks. When a knowlegeable entity attempts to make money off a unsophisticated public using unscrupulous methods, it will attract regulator involvement.

    The fact the regulators aren’t more involved is allowing the cryptocurrency scams to flourish in the first place.


    Hinman's remarks suggest that, unlike companies, which are required to educate stock investors about the health of their businesses, the developers behind bitcoin and ether face no such obligations. The basis for this conclusion, Hinman said, lies in the fact that bitcoin and ether are developed diffusely, by many unaffiliated people, rather than by a single, centralized entity such as a corporation.
    Dream on. You use mass media, to obtain public money, combined with a history of people losing their money, the Feds will get involved an clean house at some point.

    “As a network becomes truly decentralized, the ability to identify an issuer or promoter to make the requisite disclosures becomes difficult and less meaningful,” Hinman said. “As with bitcoin, applying the disclosure regime of the federal securities laws to current transactions in ether would seem to add little value.”
    Any transaction that does not meet future regulatory requirements may subject the cryptocurrenct to seizure. There may be a requirement for all transactions to be validated by the insertion of a Government transaction verification code within the blockchain. All participants may be required to comply with indentification record keeping requirements.

    The speech was seen as a victory by cryptocurrency advocates who have argued that applying securities regulation to a novel technology could inhibit its growth. Minutes after Hinman began speaking, the price of bitcoin spiked by nearly 3 percent, according to Coinmarketcap.com. The price of ether surged more than 9 percent.
    These “cryptocurrency advocates” include the people who have a huge inventory of cryptocurrencies they are probably anxious to dump on the public and have seen their investment decline over 50% since Bitcoin futures started trading.

    “We are thrilled to see [the SEC] take a strong pro-innovation approach to this nascent technology,” said Jerry Brito, executive director of the Coin Center, a Washington think tank and lobbying organization dedicated to cryptocurrencies.
    These above paragraph is eye wateringly funny. “A Washington think tank and lobbying organization dedicated to cryptocurrencies.”. Who would spend money on congress to order to attempt to get an easier regulatory pathway if there was no profit motive? Where do you think this profit comes from? “Think tank” is a great term to use when you are looking for much-needed credibility.

    The regulatory status of cryptocurrencies has come into question as numerous cryptocurrency projects have sought funding with so-called initial coin offerings, an approach some have compared to initial public offerings of corporate stock. Whether investors were receiving adequate disclosures — or perhaps being lured into scams — became a major focus of regulators such as the SEC in recent months.
    You think? The offers are basically saying “Give me a real dollar and I will give you a virtual dollar in return”. Too funny. No wonder these guys are afraid of regulation.

    In May, state securities regulators announced a nationwide crackdown on investment schemes accused of misleading or defrauding consumers. Dozens of probes into initial coin offerings (ICOs) and other get-rich-quick promises led to cease-and-desist letters from the state regulators. Meanwhile, warnings from top SEC officials of the potential hazards of ICOs prompted analysts to wonder whether a wider reckoning for cryptocurrency was coming.
    Oh it’s coming, all right.

    On Thursday, Reuters reported, the U.S. Commodity Futures Trading Commission asked a federal judge to rule that the virtual currency My Big Coin is a commodity subject to the regulator's oversight. Reuters said that the lawsuit filed against technology entrepreneur Randall Crater and My Big Coin Pay could determine to what extent the CFTC can regulate cryptocurrency frauds.
    It should be ruled as a scam, not a commodity. At least the CFTC is starting to take some steps in enforcement.

    For the SEC not to regulate bitcoin and ether could create some risks for investors, said David Sirignano, a partner at the law firm Morgan Lewis.

    “Buying into a platform that does not provide [securities] disclosures and is not being treated as a security,” he said, “they not only don’t get the benefit of those disclosures, but they also do not get the benefit of some of the rights that securities laws afford investors, including the right to rescind their purchase if they were misled or if it was improperly issued.”

    The SEC’s announcement Thursday is likely to open up new questions for cryptocurrency entrepreneurs, said Gary Gensler, the former chairman of the Commodities Futures Trading Commission. “When is something that waddles like a duck and quacks like a duck and thus regulated like a duck no longer waddle and quack sufficiently that it doesn’t need to be regulated like a duck any longer?” he said.

    In many cases, but not all, companies that handle cryptocurrencies comply with tax, banking and other regulations that aim to protect consumers. Securities laws aim to add an additional layer of safety beyond ordinary consumer protection law, analysts say.

    Although bitcoin and ether do not appear to warrant securities regulation today, Hinman said, that could change in the future. And the SEC's analysis on Thursday did not address other cryptocurrencies that the agency may decide ought to be regulated as securities.
    There are far better places to put one’s money than cryptocurrencies. Traditional investments have lower transaction fees, have investor protections, better price stability, and indirectly provide a source of capital for our financial system.

    "Pekelo, post: 4673065, member: 39548"]It doesn't matter if it starts to regulate my baseball card business, although before the futures's existence they didn't care.
    If you use mass media to obtain public funds on a sufficently large scale as a business, you will be subject to government regulation whether it is baseball cards, ridesharing, or even repeated garage sales.
     
  10. Pekelo

    Pekelo

    Far enough if the business is US based. But most cryptos are not. Ether was started by Vitalik, who is Russian and I am not sure in this case the location of the servers or the business registration would count, probably neither is USA.
     
    #10     Jun 15, 2018